Russian state fund targets Asia investors via CIC

A joint fund has been set up between RDIF and CIC to co-invest in private equity deals. It will tap other investors, including family offices in Asia.
Russian state fund targets Asia investors via CIC

A new Russia-China investment fund was launched by political leaders in Beijing yesterday in a landmark deal that aims to tap private equity opportunities in both countries.

Collaborating in the venture are China’s $440 billion sovereign wealth fund CIC and the Russian Direct Investment Fund (RDIF), a $10 billion vehicle set up by the Russian government last year to co-invest in PE deals with international PE funds, SWFs and multinational corporations.

Yesterday represented the official launch of the fund, with both RDIF and CIC contributing $1 billion each. The fund will largely make private equity-style investments into the Russian economy, although it can also invest up to 30% in China.

Shortly before the signing ceremony, Kirill Dmitriev, chief executive of RDIF, told AsianInvestor that the fund had identified five transactions it was considering. It expects to start investing over the next two months.

Thereafter it will set out to raise a further $1-2 billion from institutional and sophisticated investors, with a focus on Asia, a process that Dmitriev anticipates will take 18 months.

“One of the transactions is in the forestry business, where a company is exporting a lot of raw wood into China,” he says. “The idea is to invest in more value-added processing in Russia, so China gets more processed wood and the Russian company can become more efficient and grow.”

He notes that RDIF sees similar opportunities in logistics, and references a recent visit to Russia by Chinese vice-premier Li Keqiang, when he voiced expectations that trade between Russia and China could grow 10 times in the foreseeable future.

“That will generate a lot of opportunities to find value in logistics and ports, and we will look at agriculture and some extraction industries,” adds Dmitriev. “So it is a diversified approach.”

The joint Russia-China fund will comprise staff from both RDIF and CIC. RDIF's advisory board features prominent players including CIC chairman Lou Jiwei; Bader al-Saad, head of the Kuwait Investment Authority; and Chong Suk-Choi, president and CEO of Korea Investment Corporation. For a full board list, see here.

Asked which investors in Asia the fund would target, Dmitriev responds: “Our initial focus is on the sovereign wealth community, so the big funds in places like Korea, Singapore and Malaysia.

“But I also think the fund opens the door for investors such as family offices, who may view investing in Russia by themselves as too much hassle whereas co-investing with CIC and ourselves might make sense.”

He notes that Asia is a focus for the fund, pointing to negative perceptions among investors with Russia down in 143rd place on Transparency International’s corruption perception index.

Dmitriev sees room to improve, with China having invested less than $2 billion in non-public equity in Russia last year in comparison to $83.5 billion in trade between the two countries.

“There are some true stories about [Russia] being a difficult market to invest in,” he adds. “But we believe China’s investment into Russia can grow more than 10 times and we are specifically focusing on Asian investors.”

In terms of target return, Dmitriev declines to be drawn into specifics, but says he is aware investors might expect 20%. “We believe Russia can provide opportunities like that,” he adds.

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